By Senad Karaahmetovic
Goldman Sachs analysts made a series of rating changes in the firm’s research coverage of retail stocks.
The analysts highlighted warnings issued by many companies that consumers are under an increasing amount of pressure from inflation. As a result, they see uncertainty and risk to the macro and consumer spending continuing into 2023.
The analysts downgraded RH (NYSE:RH) to Sell from Neutral on expectations sales will remain pressured. Moreover, the analysts highlight difficult comps and a relatively high valuation despite the near 50% drop this year.
“We believe that, while the backlog will continue to offset demand weakness for the next few quarters, the benefit is unlikely to continue for the whole of FY23,” they said in a client note.
Similarly, the analysts cut Ulta Beauty (NASDAQ:ULTA) to Neutral from Buy, citing limited share gains, difficult comps, margin risk tilted to the downside, as well as limited upside to valuation.
“The risk/reward skews more toward the downside, while earnings growth is likely more limited next year.”
The analysts also slashed the broker’s rating on Genuine Parts Company (NYSE:GPC) to Sell from Neutral, primarily due to the swollen inflation.
On the other hand, Goldman Sachs analysts upgraded Best Buy (NYSE:BBY) to Neutral from Sell, although they still see “a challenging demand environment in the near term.”
This is because “consumer electronics are highly discretionary, purchases of certain products (such as TVs and appliances) are higher ticket, and we expect BBY will likely continue to face a headwind from demand pull-forward related to the stimulus-driven purchase cycles of 2020 and 2021, at least in the very near term,” the analysts added.